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Research Objective 1: What are the factors that influence consumers’ decision to use credit cards?

Research objective one determines the factors that influence the consumers’ decisions to use or not to use credit card. Such factors include convenience, interest rate, reward program, technology (acceptance point), credit limit, annual fee, ease in applying credit card, gender, age, marital status, educational level, occupation, working duration, size of household and monthly income. The empirical result and the percentage of the correct predictions are reported in the Table 4.1.

The dependent variable in the model is the consumers’ decision to use the credit card and not use the credit card. The result shows approximately 65% of the respondents owned a credit card, while 35% were non-credit card user. The explanatory variables such as convenience and credit limit are measured as interval units. Age, marital status, annual household income, education level, occupation, size of household is dummy-coded variables. Age is divided into three groups: young age (below 36 years old), middle age (36 to 55 years old) and old age (above 55 years old). Similarly, marital status is divided into three groups: single, married and others (divorced or separated and De facto relationship). Monthly household income

includes three groups as well: low monthly income (4,000 RMB or lower), middle monthly income (4,001 RMB to 10,000 RMB) and high monthly income (10,000 RMB and above). Occupation is divided into four groups: professional jobs (lawyer, scientists, engineers, teachers, doctors, etc.), middle professional jobs (civil servant, company managerial staff and owners of private enterprise), normal company staff and others (unemployed and retired). The education level includes four groups such as high school education or lower, two-year College, bachelor degree and others (Post graduate, Master and PhD).

The estimated results in Table 4.1 show that the model fitted the data adequately. The chi squared test strongly rejected the hypothesis of no explanatory power. The percentage of observations that are correctly predicted by the model is 76.5%. At 5% significant level, most explanatory variables were found to be statistically significant to influence the probability of using credit card, except technology, annual fee, male, bachelor, middle profession, one to five working duration and low income.

Table 4.1 Empirical Result (Logit Model of Credit Card Users versus Non-Credit Card Users) Number of observation= 409 Log likelihood= -197.07672 Wald chi2 (15)= 105.55 Prob > chi2= 0.0000 Degree of freedom= 1

Percentage of Right prediction= 76.5%

Variables Coefficient Standard Error t-statistics p-value Marginal Effects

Convenience 0.30927* 0.07071 4.37 0.000 0.06671 Interest rate -0.30077* 0.06994 -4.30 0.000 -0.06488 Reward Program 0.12775** 0.06362 2.01 0.045 0.02756 Technology (accept point) 0.07283 0.06174 1.18 0.238 0.01571 Credit limit 0.10981*** 0.64915 1.69 0.091 0.02369 Annual fee -0.0275922 0.06157 -0.45 0.654 -0.00595 level of difficulty in applying credit card

-0.7193091* 0.10331 -6.96 0.000 -0.15517 Male -0.10557 0.25583 -0.41 0.680 -0.02282 Young age 0.56339*** 0.33903 1.66 0.097 0.12194 Single -0.81130** 0.38674 -2.10 0.036 -0.18384 Education level: Bachelor -0.34812 0.08681 -1.34 0.181 -0.07626 Occupation: middle professional 0.40042 0.14393 1.39 0.164 -0.04319 Working duration: 1 to 5 years 0.44119 0.16578 1.33 0.183 0.08403 Size of household: Three 0.24722* 0.08929 2.77 0.006 0.05333 Annual household

income: Low income

-0.24460 0.29699 -0.82 0.410 -0.05355

*denotes statistical significant at the 0.01 level of significance **denotes statistically significant at the 0.05 level of significance *** denotes statistically significant at the 0.1 level of significance

As hypothesized, convenience is statistically significant at 1% level in influencing the consumers’ decision to use credit card or not to use credit card. The coefficient sign is positive implies that consumers who are concerned about convenience in

most respondents agreed that credit cards bring them convenience such as traveling or shopping online, and by using credit card, the consumers do not need to carry lots of cash. This is consistent with the findings of Worthington, Thompson & Stewart (2011), where they found young affluent Chinese cardholders believed using a credit card is more convenient than paying with cash. The young affluent Chinese cardholders strongly agreed that credit cards are more useful when travelling and shopping, and it is much easier than paying by cash.

Interest rate is negative and statistically significant at the 1% level. This means the higher the interest rate, the less likely that the consumers will use credit cards. Canner & Luckett (1992) found that the credit card revolvers are more likely to be sensitive to the level of interest rate. This is because when credit card users cannot pay off their credit card bill before due day, they will end up paying higher interest rate to the bank.

Reward program is positive and statistically significant at the 5% level. Reward program means consumers can use the credit card points, where they earned when using credit card to make payment or to exchange for some household goods without spending extra money. The result implies that a good reward program will attract more consumers to apply for credit cards. In addition, most respondents strongly agreed that they can get some extra rewards by using credit card, such as

discount on purchase and gasoline reward. There are many other rewards, such as free accident insurance, medical insurance, trailer and car wash, bank or airport VIP lounge service, etc. (Xici, 2012).

Credit limit is positive and statistically significant at 10% level, which suggests that consumers who are concerned about the credit limit will be very likely to be a credit card user, especially for some people with higher expenditures, where lower credit limit card will be insufficient to meet their expenditures. Eunyoung Beak & Gong-Soog (2004) showed that the credit limit reflects the ability to borrow, consumers who have higher ability to borrow may prefer a higher credit limit card, as the higher credit limit allows them overdraft more money from the credit card.

The level of difficulty in applying a credit card is negative and statistically significant at the 1% level. This means less people will apply for a credit card if the application process is difficult. The easier the applying process the more consumers will apply for the credit card. This is supported by the finding by Sine (2006) where consumers only need to fill up a form in the bank and almost all consumers can get a credit card with different levels of credit limit, and this has attracted many customers to apply for a credit card.

coefficient sign is correct as hypothesized. This suggests that the younger householders are more likely to use credit card than older householders. Base on the survey results, the largest proportion (54%) of credit card users is from the age group of 18 to 35 years old, this is consistent with Awh & Waters (1974)’s finding that older age reduces the likelihood of an individual being an active credit cardholder. This is also consistent with Kim & DeVaney (2001)’s finding, where they found people who are under 37 years old have the highest likelihood of being a revolving credit card user, and people who are older than 37 years old are less likely to be a revolving credit card user.

The marital status coefficient is also significant at the 5% level and has the correct sign. The negative relationship suggests that single respondents are less likely to have a credit card. Kinsey (1981) and Steifle (1994) find that consumers who are married have higher expenditures, which are more likely to spend more in their daily life or even borrowing money, and the credit card is one of the easiest ways to borrow to purchase goods.

The size of the household coefficient is positive and statistically significant at 1% level. In China, most families have three members in the household, two parents with a child. A household with three members implies the daily spending will be higher than other household size, such as a married couple or a single adult living

alone. Thus, it is necessary for them to use credit cards. This is consistent with Chien & Devaney’s (2001) study where household with a large household size are more likely to have specific attitudes toward using credit card and having higher outstanding credit card balances. Bertaout & Haliassos (2001) also found, among the households that have a credit card, the households with more children are more likely to revolve credit card debts because more children result in higher expenditure in their daily life.

Other explanatory variables such as technology, annual fee, male, educational level, occupation, working duration and household monthly income are insignificant but with the correct signs in explaining the consumers’ decision to use or not to use credit cards.

In summary, the results of the logit analysis suggest the factors such as convenience, interest rate, reward program, credit limit, ease of applying credit card, age, marital status and size of household influence consumers’ decision to use credit card (see Table 4.2).

Table 4.2 Result for Research Objective One

Variables Supported Not Supported

Convenience √

Interest rate √

Reward program √

Technology (accept point) √

Credit limit √

Annual fee √

level of difficulty in applying credit card √

Male is negative related √

Young age is positive related √

Single is negative related √

Educational level is negative related √

Occupation is positive related √

Working duration is positive related √

Size of household is positive related √ Lower monthly income is negative related

√

Additional analysis of the data was carried out by ranking the means in descending order of importance (see Table 4.3) towards how the credit card attributes are important to the consumers. For example, the mean figures which are close to 8 indicate that the factors are very important; the figures which are close to 4 indicate that the factor are moderately important; and the figures which are close to 1 indicate that the factors are not important at all.

Table 4.3 Mean Values of Credit Card Attributes Measurement (All Respondent)

Attribute Variables Mean

Convenience 7.05

Credit limit 5.99

Annual fee 5.66

Interest rate 5.42

Technology (accept point) 4.87

Reward program 4.43

Table 4.3 presents the results of the relative importance of each predetermined attitude factor, ranking in descending order of its influence on the decision to use credit card.

According to data in Table 4.5, convenience is the most important attributes which influences the respondents’ decision to use credit cards. This is followed by other factors such as credit limit, annual fee, and interest rate. Technology (acceptance point) and reward program factors have marginal influence of the respondents’ credit card use decision.

Table 4.4 Characteristics for Not Using Credit Card Variable Frequency (no. of Respondents per option) Percent (%) Inconvenient Yes 22 15.5 No 120 84.5 Total 142 100.0 Application fee is too high Yes 12 8.5 No 130 91.5 Total 142 100.0

Annual fee is too high

Yes 16 11.3

No 126 88.7

Total 142 100.0

Service fee is too high Yes 14 9.9 No 128 90.1 Total 142 100.0 Risk of accumulating Yes 39 27.5 No 103 72.5 Total 142 100.0 Unable to quality Yes 10 7.0 No 132 93.0 Total 142 100.0 Security concerns Yes 41 28.9 No 101 71.1 Total 142 100.0 Privacy concerns Yes 23 16.2 No 119 83.8 Total 142 100.0 Difficulty record keeping Yes 4 2.8 No 138 97.2 Total 142 100.0 Don’t need a credit card Yes 57 40.1 No 85 59.9 Total 142 100.0

Table 4.4 shows for most of the non-credit card users, the main reason why they choose not to use a credit card is that they do not need a credit card. This is because

they are still used to cash payment. For examples, the survey result shows 61.1% of the respondents still use cash to make payment when shopping. Previous studies show some consumers have higher savings, and their incomes are enough to pay for their daily expenditures, so they do not need credit cards to supplement their daily expenditures (Ma, 2006). A major reason why consumers do not use credit cards is because they may not have the ability to pay off the credit card bill with their low incomes (Wenku, 2008).

In summary, the result of objective one showed apart from the socio-economic factors, convenience, reward program, credit limit and the level of difficulty in applying credit card are the other factors which significantly impact the respondents’ decision to use credit cards.